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The Balancing Act in New Emerging Markets Funds

http://www.bloomberg.com/news/2012-05-23/the-balancing-act-in-new-emerging-markets-funds.html

Money manager Jai Jacob has a problem. Most of his clients at Lazard Asset Management believe the best growth prospects are in emerging markets -- but are afraid of investing in them, typically having only 3 percent to 5 percent of portfolios invested there. “There’s this cognitive dissonance," says Jacob. "Investors have their smallest weighting to an asset class in which they have strong long-term conviction. They size their allocations based on volatility, not expected return."

Such fears are not unfounded. Although the long-term returns of emerging markets are among the best of any asset class, the average emerging stock has an annual volatility of 25 percent, meaning it could be up or down 25 percent in any year -- enough to scare off conservative investors. That’s why last March, Lazard launched an Emerging Markets Multi-Strategy Fund. It seeks to mitigate stock market risk by also investing in emerging market bonds and currencies, increasing exposure to these assets when stock market conditions seem unfavorable.

Comments

  • On a related EM note:

    BlackRock Sees Vale as Best Stock in Brazil on Weaker Real

    http://www.bloomberg.com/news/2012-05-22/blackrock-says-vale-is-most-obvious-stock-to-buy-in-brazil.html

    Vale SA (VALE3), the world’s largest iron-ore producer, is the best Brazilian stock for investors as a weakening real boosts profits and China’s expanding economy stimulates demand for steel, according to BlackRock Inc. (BLK)

    Vale is the “most obvious” stock to buy in the South American country, Will Landers, who manages $7 billion in Latin American equities at New York-based BlackRock, said in an interview today. The falling real is increasing the Rio de Janeiro-based company’s profit margin and he expects the company to benefit from Chinese attempts to speed up its economy in the second half of the year.

  • That means they really do not have that much conviction to invest more than 5%. Actions speak volumes than words.
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